Computer System for Financing Ownership of a Vehicle

ABSTRACT

A computer system for financing ownership of a vehicle is disclosed. The computer system includes a computer application for implementing the following steps on a computer: calculating an amount financed of a RIC or loan for financing the purchase and ownership of a first vehicle at or before inception of the purchase; at or before inception of the purchase, determining a first payment amount for each of a plurality of first payments to occur before a decision point and a second payment amount for each of a plurality of second payments to occur after the decision point, the first payment amount being a predetermined percent lower than the second payment amount; and prompting contact of the customer based on the decision point to promote trade-in of the first vehicle.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation and claims priority to U.S.application Ser. No. 10/248,557, filed Jan. 29, 2003, entitled “MethodFor Financing Ownership Of A Vehicle,” which claims the benefit of U.S.provisional application Ser. No. 60/362,406, filed Mar. 7, 2002,entitled “An Automotive Finance Process That Provides The Low CustomerPayments And Customer Trade Cycle Management Features Of A Lease WithoutThe Residual Exposure.”

BACKGROUND

1. Technical Field

At least one aspect of the present invention generally relates tocomputer systems for financing ownership of a vehicle.

2. Background Art

In a typical vehicle leasing arrangement between a vehicle manufacturerand a vehicle customer, a vehicle dealership supplies the vehicle to thevehicle customer and the vehicle leasing company retains ownership ofthe vehicle. At the end of the lease term, the vehicle customer usuallyhas two options: (1) the vehicle customer can return the vehicle to thevehicle dealership (which in general is returned to the vehicle leasingcompany), (2) the vehicle customer can purchase the vehicle for thepurchase option price.

Under typical leasing agreement terms, the vehicle customer has thefirst option to purchase the vehicle. In turn, if the customer decidesnot to purchase the vehicle, the dealership can purchase it from thevehicle leasing company. If the LEV is less than the market value, thecustomer or dealership usually purchases the vehicle to preserve theequity in the vehicle or turn a profit (if the vehicle is sold) equal tothe difference between the LEV and the market value. If the LEV isgreater than the market value, the customer and dealer passes on theiroption and the vehicle leasing company remains the owner of the vehicle.Consequently, the vehicle leasing company absorbs a loss equal to thedifference between the LEV and the market selling price. This problem iscommonly referred to as the residual loss problem.

Vehicle ownership plans financed by a finance company, bank or otherfinancing institution can avoid the residual loss problem associatedwith typical leasing arrangements. Under a typical vehicle ownershipplan with an indirect finance company, the vehicle customer purchasesthe vehicle from a dealer and enters into a retail installment contract(RIC) (a contract which evidences the purchase of the vehicle on creditover time) with that dealer. The dealer then assigns that RIC to thefinance company. Under a typical ownership plan with a direct financecompany or bank, the customer obtains a loan from the bank or otherfinance company and uses that loan to purchase a vehicle from a dealer.In such case, the finance company, bank or other financial institutionwould not have the residual loss responsibility since it does not ownthe vehicle.

Vehicle ownership plans may not fit all of a vehicle customer'sconcerns. In recent times, vehicle customers are generally motivated bylower monthly payments and vehicle ownership. Leasing is generallyrecognized as the primary tool to deliver low monthly payments. On theother hand, vehicle ownership plans typically require substantiallyhigher payments at similar terms.

To align the vehicle customer's concerns of low payments and ownership,automotive companies have created alternatives to typical leasingprograms and vehicle ownership plans. For example, Mazda Motor Companyhas offered the “Progressive Payment Plan”. The vehicle customerpurchases a vehicle from a Mazda dealer on a RIC which is assigned toMazda American Credit. The customer then makes monthly payments to MazdaAmerican Credit in order to pay off the RIC. According to the“Progressive Payment Plan”, Mazda Motor Company pays half of the monthlypayment for six months and pays a quarter of the monthly payment for thenext six months.

Although this program and similar programs offer low initial paymentsand ownership, these programs do not address trade cycle management.Trade cycle management is the practice of promoting vehicle trade-in andpurchase of a new vehicle. As a result, there exists a need to provide acomputer system for financing ownership of a vehicle with a RIC or aloan having a RIC or loan term which offers low initial payments andvehicle ownership while promoting vehicle trade-in and purchase of a newvehicle by providing a decision point, which is at or about the midpointof the RIC or loan term.

SUMMARY

In one embodiment, a computer system for financing ownership of avehicle is disclosed. The computer system includes a computerapplication for implementing the following steps on a computer:calculating an amount financed of a RIC or loan for financing thepurchase and ownership of a first vehicle at or before inception of thepurchase; at or before inception of the purchase, determining a firstpayment amount for each of a plurality of first payments to occur beforea decision point and a second payment amount for each of a plurality ofsecond payments to occur after the decision point, the first paymentamount being a predetermined percent lower than the second paymentamount; and prompting contact of the customer based on the decisionpoint to promote trade-in of the first vehicle.

These and other aspects of the present invention will be betterunderstood in view of the attached drawings and following detaileddescription of the invention.

BRIEF DESCRIPTION OF THE DRAWINGS

The features of the present invention which are believed to be novel areset forth with particularity in the appended claims. The presentinvention, both as to its organization and manner of operation, togetherwith further objects and advantages thereof, may best be understood withreference to the following description, taken in connection with theaccompanying drawing which:

FIG. 1 is a block flow diagram illustrating a preferred embodiment of amethod for financing ownership of a vehicle according to one or moreembodiments of the present invention; and

FIG. 2 is an environment, i.e., a computer system, suitable forfinancing ownership of a vehicle according to one or more methodembodiments of the present invention.

DETAILED DESCRIPTION OF THE EMBODIMENTS

As required, detailed embodiments of the present invention are disclosedherein. However, it is to be understood that the disclosed embodimentsare merely exemplary of the invention that may be embodied in variousand alternative forms. Therefore, specific functional details disclosedherein are not to be interpreted as limiting, but merely as arepresentative basis for the claims and/or as a representative basis forteaching one skilled in the art to variously employ the presentinvention.

A preferred method of practicing the present invention includes twobasic steps: (a) financing the purchase of a vehicle with a RIC or loanrepaid with a set of first payments followed by a set of secondpayments, and (b) contacting the customer prior to the decision point topromote trade-in of the vehicle and new vehicle purchase. The firstpayments last until a decision point and are about 10 percent to about40 percent lower than the second payments. The customer can avoid atleast a substantial number of the second payments by trading in thevehicle and purchasing a new vehicle.

FIG. 1 is a schematic diagram illustrating a preferred methodology forimplementing the present invention. As represented in block 12, thepurchase of a vehicle is financed with a RIC or loan having a decisionpoint.

The decision point is preferably provided by structuring the repaymentof the RIC or loan with a set of first payments and a set of secondpayments. The decision point preferably marks the point during the RICor loan repayment period in which the loan payment switches from thefirst payment to the second payment. The level of the first and secondpayments can be dependent upon a number of considerations, including,but not limited to, providing a lower first payment to encourage theinitial purchase of the vehicle and providing a higher second payment topromote trade-in and new vehicle purchase.

The first and second payments are preferably made by the vehiclecustomer on a periodic basis, most preferably a monthly basis. However,it should be understood that the first and/or second payments can bemade by the customer on a weekly, biweekly or semi-monthly basis to bestfit a particular implementation of the present invention. It should alsobe understood that the amount financed can be decreased by a downpayment or vehicle trade-in made by the vehicle customer. The RIC orloan term can be from about 36 months to about 84 months to best fit aparticular implementation of the present invention.

In accord with a preferred embodiment, the first payments are about 10percent to about 40 percent lower than the second payments. The firstpayments provide the customer with low initial payments typical of avehicle lease arrangement and the benefits of vehicle ownership.Moreover, the prospect of the higher second payments may reduce customersticker shock as they shop for a new vehicle.

Additionally, the customer has a different expectation of the paymentlevel at the decision point relative to the end of a typical leasingarrangement. The customer's expectation under the financing methods ofthe present invention is that the payment level will increase about 10to about 40 percent after the decision point. With respect to a typicalleasing arrangement, the customer expects that the payment level on anew lease vehicle will be comparable to the existing payment. Faced withthe prospect of a higher payment under the present invention, thecustomer will be pleased if they can trade in their vehicle for a newvehicle with payments equivalent to the second payment level of theirexisting vehicle RIC or loan. On the other hand, a lease vehiclecustomer may experience sticker shock as they re-lease.

There are at least four different techniques that can be usedindividually or in combination to provide the set of first paymentsfollowed by the set of second payments. It should be understood thatthese techniques can be implemented using a computer system, computersoftware and/or computer application. Preferably, the computer system isa hand-held calculator that can be utilized by a dealershiprepresentative to estimate at least the first and second payment levelsduring negotiations with a vehicle customer. FIG. 2 depicts a computersystem 100 suitable for implementing one or more embodiments. Computersystem 100 includes computer 102, computer software 104 and database106.

One technique includes writing the first portion of the RIC or loan termin which the customer makes the first payments for a longer amount oftime than the second portion of the RIC or loan term in which thecustomer makes the second payments. As a non-limiting example, the firstportion of the RIC or loan can amortize at about 6 years (72 months),and the second portion of the RIC or loan can amortize at about 3 years(36 months).

Another technique includes utilizing the same interest rate anddifferent payment amount of the first and second payments. As anon-limiting example, the first portion of the RIC or loan (first 36months of a 66 month RIC or loan) can have monthly payments set lowerthan a comparable 60 month RIC or loan. The second portion can havemonthly payments adequate to fully amortize the remaining principalbalance over the remaining 30 months. A preferred implementation of thistechnique includes programming a hand-held computer or softwareapplication downloaded into the dealer's computer system to compute thefirst and second payment levels based on a financing amount, an interestrate, the decision point and the term of repayment. For example, thefinancing amount can be $15,000.00, the interest rate can be 5.90percent APR, the decision point can be at 36 months, and the term ofrepayment can be 66 months. Accordingly, the first payment level can becomputed by using the 5.90 percent APR amortized over 60 months andmultiplied by 0.85 (to provide the lower payment). Using this formula,the first payment level is $245.90 for the first 36 months of the RIC orloan. The second payment level can be computed by fully amortizing theremaining principal balance after the first payments end over theremaining term of the RIC or loan, i.e., 30 months. Using this formula,the second payment level is $268.69. It should be understood that theinput values, i.e., financing amount, interest rate, decision point, andloan term can be adjusted individually or in combination to best fit aparticular implementation of the present invention. For example, thevehicle customer may want the dealership representative to providepayment levels for a variety of different cars or down payment levels.

Yet another technique includes issuing a rebate for the first portion ofthe RIC or loan. As a non-limiting example, a $30 monthly rebate can begiven to the customer for the first 36 months of a 72 month RIC or loan.

Alternatively, the first payments can have a first interest rate that islower than a second interest rate which is applied to the secondpayments.

The estimated equity point of the RIC or loan is considered indetermining the decision point. The equity point refers to the pointduring the repayment term in which the amount owed is substantiallyequivalent to the value of the vehicle. At the equity point, the vehicleowner can sell their vehicle and use the proceeds to pay off the amountowed. Alternatively, the vehicle owner can trade in their vehicle to adealership. In this case, the amount owed is paid off by the dealer sothat the customer can enter into a new lease or vehicle purchase withoutan outstanding balance on the RIC or loan.

It should be understood that the equity point varies with the paymentamount, deprecation rate of a vehicle, and the down payment. Generally,the slower the depreciation rate or the higher the down payment, thesooner the equity point will be reached. The methods of the presentinvention can be utilized with vehicles that have relatively low or highdepreciation or when the customer considerably lowers the amountfinanced with a significant down payment or when the vehicle ispurchased with no down payment.

Some customers may be in a slightly negative equity position (otherwisereferred to as the GAP) at the decision point, i.e., the customer owesmore money than the vehicle is worth when it is sold to the dealer andthe RIC or loan is paid off by the dealer. If the customer decides totrade in his vehicle for a new vehicle, the vehicle manufacturer can paya portion of the GAP to the finance company as an incentive to thecustomer for purchasing a new vehicle from the same vehiclemanufacturer. It should be understood that the GAP costs represent areal cost associated with the customer selling their vehicle andpurchasing a new vehicle. Preferably, an optimum mix is achieved whichoffers low first payments to encourage purchase while promoting highcustomer loyalty by paying part of the trade-in GAP.

As represented in block 14, the customer is contacted prior to the RICor loan reaching the decision point to promote trade-in and new vehiclepurchase. The customer is preferably contacted by a dealershiprepresentative or the finance company (or vendor working on theirbehalf). The information relating to the customer's RIC or loan, mostparticularly the decision point, can be stored in a computer database,for example, computer database 106 of FIG. 2. Preferably, the dealershiprepresentative can access the computer database in order to identifyvehicle customers that have RIC or loans that are near the decisionpoint. Alternatively, the computer database can be linked to anapplication, such as software 104 of FIG. 2, that can alert thedealership representative of vehicle customers that are near thedecision point, i.e., through an e-mail notification, such as e-mailnotification 108. Other RIC or loan information, i.e., first and secondpayment levels, can also be stored in the computer database fordealership representative retrieval and use during customer contact.

It should be understood that the customer can be contacted, for example,by conventional mail, electronic mail or telephone. It should also beunderstood that contact can also be made after the decision point tobest fit implementation of the present invention. The customer can benotified that at least a portion of GAP costs can be avoided and atleast a portion of the higher second payments can be avoided by tradingin the current vehicle and purchasing a new vehicle. The RIC or loanpayment for the new vehicle can be advertised as being the same or lowerthan the current low first payment. In some cases, the customer can alsobe reminded that the primary warranty for the vehicle may be ending.

Armed with this information, the vehicle customer is in a betterposition to evaluate trading in their vehicle for a new vehicle, asdepicted in decision block 16. Preferably, the new vehicle is financedusing the methods of the present invention, i.e., uneven payment streamswith a decision point. From a dealership's perspective, if the vehiclecustomer does trade in their vehicle, the trade cycle is improvedrelative to a standard vehicle RIC or loan. From a vehiclemanufacturer's perspective, the majority of marketing costs can bedirected at the first portion of the loan term rather than the fulllength of the RIC or loan term. Not all customers may feel they are in aposition to trade or make the higher second payments. As an alternativeto trade-in or new vehicle purchase, the finance company, bank or otherfinancial institution can offer refinancing so that the vehicle customercan lower their payment by extending the term of the RIC or loan.

Accordingly, the present invention can be implemented in the followingnon-limiting example. A customer can purchase Vehicle A without a downpayment. For purposes of the example, Vehicle A can retail at $14,795MSRP with an estimated residual value of 60 percent after 24 months, 53percent after 36 months and 50 percent after 41 months. The set of firstpayments can be set at a level to amortize in 72 months, i.e., $272 permonth at 9.75. Accordingly, the equity point is reached approximatelyafter about 42 monthly payments. The decision point can be set at month40. At the decision point, the first payments end and the secondpayments begin. The second payments can be $295 per month, or $25 moreper month than the first payments. It should be understood that theincrease can be more or less than $25 as long as the amount is highenough to motivate a customer to trade in, but not so high as to deterthe customer from considering the methods of the present invention.

Prior to the decision point at 40 months, preferably between months 34and 40, the customer can be reminded of the impending payment increasewith a telephone call, via conventional mail or via e-mail. However, itis understood that contact can be made after the decision point and insuch case the portion of switching costs avoided may be adjusteddownward relative to trade-in and new vehicle purchase prior to thedecision point. If the elevation in monthly payments does not serve asadequate motivation for the customer to trade in, then the manufacturermay offer a renewal incentive designed to cover all or some of thepotential GAP costs. During the same contact, the customer can also benotified that financing is available for the purchase of a new vehiclewith a competitive payment. This offer would appeal to many vehiclecustomers, especially if they value low payments and/or ownership of anew vehicle.

While the best mode for carrying out the invention has been described indetail, those familiar with the art to which this invention relates willrecognize various alternative designs and embodiments for practicing theinvention as defined by the following claims.

1. A computer system for financing ownership of a vehicle and comprisinga computer having a computer application for implementing the followingsteps on the computer: calculating an amount financed of a RIC or loanfor financing the purchase and ownership of a vehicle at or beforeinception of the purchase of the vehicle; at or before inception of thepurchase of the vehicle, determining a first payment amount for each ofa plurality of first payments to occur before a decision point and asecond payment amount for each of a plurality of second payments tooccur after the decision point, the first payment amount being apredetermined percent lower than the second payment amount; andprompting contact of the customer based on the decision point to promotetrade-in of the vehicle, the customer avoids one or more of theplurality of second payments and the step of receiving repayment isdiscontinued prior to the expiration of the RIC or loan by the customerrelinquishing ownership of the vehicle.
 2. A computer-implemented methodfor financing ownership of a vehicle by a customer, the methodcomprising: financing the purchase and ownership of a vehicle by acustomer with a RIC or loan of an amount financed at or before inceptionof the purchase of the first vehicle; at or before inception of thepurchase of the vehicle, determining a first payment amount for each ofa plurality of first payments to occur before a decision point and asecond payment amount for each of a plurality of second payments tooccur after the decision point, the first payment amount being apredetermined percent lower than the second payment amount; storing thedecision point in a computer database; accessing the computer databaseto identify if the RIC or loan is near the decision point; if the RIC orloan is near the decision point, contacting the customer based on thedecision point to promote trade-in of the vehicle, the customer avoidsone or more of the plurality of second payments and the step ofreceiving repayment is discontinued prior to the expiration of the RICor loan by the customer relinquishing ownership of the vehicle.
 3. Thecomputer-implemented method of claim 2, wherein the contacting step iscarried out via e-mail.
 4. The computer-implemented method of claim 3,further comprising storing RIC or loan information associated with theRIC or loan for the vehicle in the computer database for use during thecontacting step.